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Restructuring and insolvency

Chapman Tripp comments on recent cases, legislation and insolvency law reform.

Submission sought on Insolvency Working Group report

12 September 2016

The Ministry of Business, Innovation and Employment (MBIE) is seeking submissions by 7 October on recommendations from the Insolvency Working Group. We canvass the issues. Michael Arthur of Chapman Tripp is a member of the Working Group.

Appeal court keeps parent company on the hook

17 August 2016

The Court of Appeal has dismissed an appeal by Steel & Tube Holdings Limited (STH) against the legal basis and quantum of a $750,000 judgment based on a “de facto amalgamation” with its subsidiary company. The ruling reinforces the message from the High Court that directors must be careful to maintain a subsidiary’s independence if they are to protect the parent against liability for the subsidiary’s debts.

Feedback sought on use of retirement savings in bankruptcy

15 August 2016

The Ministry of Business, Innovation and Employment (MBIE) is proposing law change after the Court of Appeal ruled that KiwiSaver funds are beyond the reach of the Official Assignee. The effect of the ruling is to provide a higher level of protection for KiwiSaver balances than for other forms of retirement savings. MBIE is seeking feedback on a range of options to create a uniform policy approach to the use of retirement savings in bankruptcy. Submissions close on 30 September 2016. We encourage you to make a submission.

Significant decision on Part 15A voluntary administration

09 August 2016

The High Court has issued its first major decision under Part 15A of the Companies Act, rejecting a multi-faceted challenge by Cargill International to the Solid Energy Deed of Company Arrangement (DOCA). The ruling provides important guidance on the operation of New Zealand’s voluntary administration regime. Chapman Tripp acted for Solid Energy’s lenders, the fourth respondents in the proceeding.

Liquidator "fabricated" key document – High Court

28 July 2016

The High Court this month ruled that a liquidator, Geoff Martin Smith, fabricated an alleged notice to the bank holding security over the company in liquidation. If the notice, under section 305 of the Companies Act, had in fact been given, then the lack of reply would have resulted in the bank being deemed to have surrendered the security.

Directors' remuneration post-insolvency

02 June 2016

Directors do not need to consider creditors’ interests when determining the fairness of their own remuneration, even after the company has become insolvent, the Court of Appeal has found.

Doing business in New Zealand

01 June 2016

Haere mai is Māori for welcome and New Zealand is one of the most open economies in the world. But there are rules and regulations that will apply, and we are familiar with them. This publication is designed to provide the prospective investor with an introductory guide to the New Zealand legal framework as it applies to business.

Directors in breach not always liable

27 May 2016

A director is not absolutely liable for all losses suffered by a company on his or her watch. So the Court of Appeal has ruled in a recent liquidation dispute.

Customs charge vs security interest: High Court decides priority

06 May 2016

The statutory charge on goods by the New Zealand Customs Service (Customs) outranks a General Security Agreement (GSA) even if Customs has allowed the goods to be released with the duty still owing.

Voidable transactions in New Zealand – where to from here?

29 March 2016

The Court of Appeal’s judgment in McIntosh v Fisk, released last week, regarding liquidators’ ability to claw back payments made by Ponzi schemes to investors would have gone very differently but for the Supreme Court’s landmark ruling last year in Fences & Kerbs on the meaning of “gave value”.

Can you sell your customer database?

11 March 2016

After failing to sell Dick Smith as a going concern, receivers Ferrier Hodgson are now trying to sell the company’s New Zealand and Australian assets, including customer databases. But does the Privacy Act 1993 allow it?

Australia proposes insolvency law rewrite

18 January 2016

Australia has an Insolvency Law Reform Bill in Parliament and plans for more change further down the track in the form of recommendations from the Australian Productivity Commission, which the Australian Government has signalled it will adopt. These developments will be of interest to New Zealand insolvency practitioners, company directors and creditors. We summarise the proposed changes and comment briefly on the possibility of similar reform in New Zealand.

Direct deeds – not the protection expected

21 October 2015

Direct deeds provide limited protection for contractors. This is the effect of the judgment arising from what is believed to be the first use of the voidable transactions regime to challenge a payment made under a direct deed.

Statements to liquidator under oath have immunity – High Court

22 September 2015

If asked to provide information to a liquidator, the safest course may be to provide it under oath under section 261 of the Companies Act 1993 because the High Court has found that immunity will apply to such statements. We look at the decision.

Lenders can use Property Law Act notices to call up a loan

06 August 2015

The Court of Appeal has ruled that a lender can issue an acceleration notice without waiting for a Property Law Act notice (PLA) to expire. A lender can also include the acceleration notice in its PLA notice. The judgment overturns an earlier decision by the High Court and restores a crucial right to bankers and other lenders.

Update on 'big five' insolvency issues

03 July 2015

Over the last couple of years, we have developed the habit of periodically pushing up the periscope to try to determine the ‘big five’ insolvency issues on the horizon. Below is a retrospective assessment of how we did last time and our best guess as to what will dominate the next 12 months.

Receivers may be liable for body corporate levies – Appeal Court

22 June 2015

The Court of Appeal has found that receivers can be personally liable for body corporate levies accrued during a receivership. The judgment is based on a broader interpretation of the relevant provisions in the Receiverships Act 1993 than applied by the High Court in Body Corporate 162791 v Gilbert, and reverses that decision. Receivers should be wary of the broad reach of section 32(5) of the Receiverships Act 1993, which creates personal liability for rent and other payments due under agreements relating to the use, possession or occupation of property in receivership.

Voidable transactions – Court of Appeal rules out peak indebtedness but important questions remain

28 April 2015

“The peak indebtedness rule is not part of the law in New Zealand”, according to the Court of Appeal, in a decision dismissing two appeals on an issue “significant for both liquidators and creditors generally”.

KiwiSaver balances off limits in a bankruptcy – Court of Appeal

21 April 2015

A bankrupt’s KiwiSaver account balance is off limits to the Official Assignee. Even if it was not, the Official Assignee could not use the bankruptcy to invoke the hardship-based early withdrawal provisions in the KiwiSaver Act 2006. This is the effect of a Court of Appeal judgment, delivered on Friday. Although justifiable in policy terms, the decision raises issues about the appropriate balance between promoting retirement savings and protecting creditor rights.

Can a lender use a Property Law Act notice to call up a loan?

11 March 2015

In a decision surprising to banks and other lenders, the High Court has ruled that a lender cannot issue a notice to accelerate a loan before the expiry of a Property Law Act (PLA) notice, where a PLA notice is required. We disagree with the reasoning but we understand the case is not being appealed. Banks and other lenders will need to think carefully about how they accelerate secured loans.

Liquidation meetings – does a secured creditor lose its security by voting?

02 March 2015

The Court of Appeal has confirmed that if a secured creditor votes its secured debt in a liquidation meeting, the vote is invalid - and the security remains. Liquidation meetings are for unsecured creditors. A secured creditor has no vote, except in respect of debt that is unsecured.

Supreme Court - important win for creditors over liquidators

18 February 2015

The Supreme Court has today considerably expanded the “good faith” defence for voidable transactions. Where a creditor “gave value” through the original transaction, that creditor can now defeat a voidable transaction claim by proving only that it acted in good faith, with no suspicion of insolvency.

Parent company made to pay its subsidiary's debts

15 January 2015

Directors beware – unless you are careful to maintain a subsidiary’s independence, the parent company may be liable for the debts of its subsidiary. That is the effect of a recent High Court decision invoking a rarely used provision in the Companies Act. We analyse the judgment and draw some practical advice from it.

Liquidations and voidable transactions – recent and future trends

24 November 2014

Two court judgments which could significantly affect New Zealand’s insolvent transactions regime are due out soon. When they are released, we will provide a Hothouse seminar on their potential implications for creditors and liquidators. We discuss the cases briefly here and provide an overview of the current liquidation “market” based on information supplied by the Companies Office.

Receivers' liens receive robust support in Australia

11 November 2014

Successive court decisions in Australia are emphasising the enforceability of receivers’ liens in a clear statement to the market about the primacy of insolvency practitioners’ fees. This is a trend that we expect will shape policy here.

PAYE not held on trust for Inland Revenue – Supreme Court

10 November 2014

The Supreme Court, in a judgment released last Friday, has overruled the Court of Appeal by deciding that the IRD stands behind liquidators and employees when cash is available in liquidation and PAYE is owed. This decision, which upholds the payment waterfall in Schedule 7 of the Companies Act, will be welcomed by insolvency practitioners after the Court of Appeal had upset previous industry practice.

Chapman Tripp wins 'Large Law Firm of the Year' and 'Employer of Choice' at New Zealand Law Awards

07 November 2014

Chapman Tripp was named the ‘Large Law Firm of the Year’ and the ‘Employer of Choice (100+ employees)’ at the 10th annual New Zealand Law Awards. The firm also worked on every one of the winning deals and won awards for all of those roles.

Retentions trust for subbies – a workable solution?

09 September 2014

The Government is promising better protection for sub-contractors’ retention payments through a Supplementary Order Paper (SOP) to be introduced to the Construction Contracts Amendment Bill when Parliament reconvenes after the election. Drafting instructions for the SOP have been issued. Much will depend on how well it is drafted as this is a difficult area to legislate and there will not be the usual opportunity for public submissions.

Decision looming on retentions trust account issue

14 August 2014

Construction contracts typically provide for a portion of contractual payments otherwise due to the payee to be retained as a form of performance security. Due largely to the alchemising effects of the Mainzeal collapse and a boost from overseas reform, the issue of whether retentions should be held in a trust account will be dealt with in the context of the Construction Contracts Act Amendment Bill.

What's up in Australian insolvency law, and why should we care?

14 July 2014

As New Zealand inches sloth-like toward a more regulated regime through the Insolvency Practitioners Bill, introduced in April 2010 and yet to have its third reading, Australian court decisions may become more relevant here. After regulation, our two systems will still be different but less so than they are now, and already Australia provides a pointer to some of the issues which may arise here. With that in mind, we have identified the top six insolvency law developments in Australia as we see them.

Crystal ball gazing on the 'big five' insolvency issues

11 June 2014

It has become our recent practice to dust off the crystal ball and look ahead to what we expect will be the ‘big five’ insolvency issues. Below is a retrospective assessment of how we did last time and our best guess as to what will dominate the next 12 months.

More than one way to recover insolvent transactions – but liquidators take care

02 May 2014

Liquidators are not limited to the procedure set out in section 295 of the Companies Act to recover a debt once an insolvent transaction has been set aside.

High Court rules against peak indebtedness in voidable transaction claim – three strikes and you're out?

10 April 2014

Three times in the last 12 months, liquidators have been told by the High Court that they cannot choose the “point of peak indebtedness” as the start of the “continuing business relationship” in an insolvent transaction claim.

Mind what you say, and what you don't say – Court of Appeal

14 February 2014

The Court of Appeal has provided a useful reminder that the intention of a contract will be judged by the specific wording used - and that the courts may attach relevance to any deletions made during contract negotiations.

Court of Appeal sides with defendant in 'good faith' defence

20 November 2013

We picked the ‘good faith’ defence in the voidable preference regime as one of the big five insolvency issues for 2013 and so it has come to pass, with a wealth of case law on the topic. We take a look at a recent decision of the Court of Appeal, where a payment recipient which traded closely with the company in liquidation successfully relied on the good faith defence when faced with a voidable claim.

IRD plays PAYE priority trump card – and wins

23 October 2013

Inland Revenue is now ahead of liquidators and receivers in the queue for payment where cash is available in liquidation and PAYE is owed. Industry practice has been that PAYE is paid to the Commissioner of IRD only after the insolvency practitioners’ fees and employees’ wages have been paid but the Court of Appeal has accepted the IRD’s argument that the Commissioner has first claim.

High Court backs bank on sale and buy-back arrangements

01 October 2013

A company has bank funding under a GSA (General Security Agreement) but is strapped for cash. The shareholders come to the party by purchasing a big slice of the company’s inventory which they allow the company to keep and continue to sell to its usual customers, buying it back from the shareholders as needed. If the company goes into receivership or liquidation, who has the best claim to that inventory? The shareholders as owner or the bank under its GSA?

Accounts receivable more than book debts - Court of Appeal

20 August 2013

Confirmation by the Court of Appeal that “accounts receivable” are more than just book debts and include other legally enforceable monetary obligations owed to a company will provide welcome certainty to receivers and liquidators. The issue is significant because it determines the assets available to pay preferential claims.

Care needed in registering financing statements on the PPSR

09 August 2013

An effective security interest relies on a valid financing statement registered on the Personal Property Securities Register (PPSR). Defects in the financing statement could result in a secured party losing out to other creditors. A recent case is a reminder of the need for creditors to take care with financing statements.

First big Australian PPSA decision consistent with New Zealand law

01 August 2013

The first significant decision under the Australian Personal Properties Securities Act 2009 has followed New Zealand and Canadian law. The case involved competing claims by a general security holder and a lessor to three civil construction vehicles located in the Northern Territory.

"Good faith" defence to insolvent transaction claims is narrow

29 July 2013

The “good faith” defence for creditors facing insolvent transaction claims has now been fully explored by the Court of Appeal in two separate judgments relating to the Farrell v Fences and Kerbs Limited litigation – and has been confirmed on all points to have narrow application.

Due process needed in insolvent transaction recovery

03 July 2013

Liquidators must seek a court order to recover an insolvent transaction – even where the creditor has not objected in time to a notice under section 294 of the Companies Act. The importance of following the prescribed procedure was recently reinforced by the High Court. We look at the decision and the conclusions to be drawn from it.

How much freedom of manoeuvre do receivers have?

19 June 2013

It is quite a thing for the law to remove from owners the rights normally associated with ownership and to confer them on receivers. Which is why, although receivers are allowed considerable discretion in the exercise of their duties, they are also subject to oversight by the courts. So how much freedom of manoeuvre do they have, and when will the court intervene? We look at a recent decision in the Australian Federal Court and consider its relevance for New Zealand insolvency practitioners.

Eight new senior associates at Chapman Tripp

10 June 2013

Chapman Tripp is pleased to announce the promotion of seven new senior associates in our Auckland, Wellington and Christchurch offices and to welcome a new senior associate to our Auckland Finance team.

Model PPSA provisions for Australian security documents

07 June 2013

Frustrated at how long it takes and how much it costs to agree the Personal Property Securities Act (PPSA) clauses in Australian security documents? The good news is that a solution has been found to introduce some consistency into the process. The bad news is, it depends which Australian law firm you use.

When is broke broke? A UK Supreme Court perspective

20 May 2013

Like many legal tests, the test for insolvency is easy to state, but hard to apply in practice. But the United Kingdom Supreme Court (UKSC) recently issued an important clarification, which confirms that an element of forwards projection must be applied – extending in extreme cases to assessments of balance-sheet as well as cash-flow solvency. This liberal approach is likely to be followed in New Zealand, despite differences in statutory wording.

Construction contract creates a security interest

14 May 2013

A High Court decision arising out of the Mainzeal receivership confirms that a construction contract can create a security interest in goods. But where the contractor has granted other security interests, for example to its bank, the rights of the principal and the bank will rank in priority according to the rules in the Personal Property Securities Act (PPSA).

Applying accounts receivable and inventory to receivers' fees

15 April 2013

The High Court has provided useful guidance as to how receivers should apportion their fees to accounts receivable and inventory. This Brief Counsel draws out some key messages from the judgment.

Insolvent transaction defences – courts deliver mixed results for liquidators

09 April 2013

Liquidators’ ability to recover funds for unsecured creditors has been strengthened in one context and weakened in another by two recent court judgments. The Court of Appeal in Farrell v Fences & Kerbs Limited has overturned previous decisions from the High Court, which had considerably widened the availability of the “good faith” defence for creditors. But the finding is interim only, subject to a further hearing on a closely related issue. In contrast, the second decision (from the High Court) has increased creditors’ access to the “continuing business relationship” defence to minimise their insolvent transaction liability.

10 years of the Personal Property Securities Act in NZ - Lessons and Trends

22 March 2013

This paper was first presented at the Personal Property Security Law Conference (Adelaide Law School) in March 2013.

The 'big five' insolvency issues for 2013

08 March 2013

Several issues of far-reaching significance in the world of restructuring and insolvency will be decided by the courts this year. Some have yet to surface but others are already in the pipeline. We look at what we consider to be the “top five”.

Ten years on, PPSA practice in New Zealand

04 March 2013

Australia’s Personal Property Securities Act 2009 has now been in force for more than a year. Australian lawyers, financiers and insolvency practitioners have quickly got up to speed with the Act, but at this early stage there has been very little guidance from the courts as to how the Act should operate.

Law Commission wants your comments on trading trusts

18 December 2012

Big changes are proposed to the use of trusts as trading enterprises by the Law Commission as part of its ongoing review into trust law. Submissions are due by 22 February 2013

Insolvent transactions – prior consideration is enough for the good faith defence

11 December 2012

The High Court has clarified the extended good faith defence introduced into the Companies Act in 2007 for creditors facing ‘claw back’ of a payment by liquidators. The Court’s interpretation, while good news for creditors, may make it more difficult for liquidators to recover insolvent transactions.

Litigation funding agreements - not so private anymore

10 December 2012

Key details of litigation funding agreements (LFAs) may now have to be released to the other party or parties as well as to the court. This is the effect of a recent Court of Appeal decision and brings New Zealand in line with Australian practice.

Court of Appeal reinforces PPSA lessons from Crafar receivership

09 November 2012

The lessons to be drawn from the Crafar receivership in relation to the Personal Properties Securities Act (PPSA) have now been distilled by the Court of Appeal, which has largely confirmed the High Court’s reasoning. We discuss the implications of the litigation.

Phoenix directors need to act quickly

01 November 2012

Directors wanting to use the phoenix company provisions in the Companies Act 1993, to continue in a governance or a management role, need to apply to the court as a matter of urgency. The High Court, in the first contested application of the rules, penalised the director for delay.

PPSA priority set by date of registration, not perfection

04 October 2012

The Court of Appeal has reversed the High Court’s decision in Healy Holmberg Trading Partnership v Grant on a PPSA issue it describes as being of “practical significance”. The Court of Appeal is very clear that, as between competing registered security interests, the Personal Property Securities Act determines priority according to the order of registration, not the order of perfection.

New employee priority amount in business failure

03 September 2012

​From 28 September 2012 the maximum priority amount for employees in liquidations, receiverships and bankruptcies will increase from $18,700.00 to $20,340.00 per employee.

Australia offers third route to perfection (in PPSA)

31 July 2012

New Zealand companies registering a security interest in Australia need to be aware that the Australian Personal Property Securities Act offers a third route to perfection, not available in New Zealand. The Australian Act, which has now been in force for around six months, is very similar to the New Zealand Act. But there are some important differences, many of which we have already discussed. This Brief Counsel looks at another key difference - the concept of perfecting security interests by “control”.

High Court clarifies PPSA priority race rules

11 June 2012

It’s now official. Priority between competing security interests under the Personal Property Securities Act (PPSA) is assessed at the time those interests come into conflict. This will usually, but not always, be when receivers are appointed. The PPSA is silent on the issue but the general view, now confirmed by the High Court, has been that the rule established in the Canadian Sperry case is the correct approach. The point at which the conflict arises will be a question of fact in each case, with the central focus being on the security agreement between creditor and debtor.

Court confirms its broad power in voluntary administrations

24 May 2012

The High Court has confirmed its broad power to bypass the strict legislative requirements that otherwise govern voluntary administrations. Section 239ADO(1) of the Companies Act allows the Court to make any order that it thinks appropriate about how the voluntary administration provisions of the Companies Act are to operate in relation to a particular company.

Receivers must account to IRD for GST

24 April 2012

The Court of Appeal has upheld the principle that receivers must account to IRD for the GST on a mortgagee sale, even where the mortgagee was not GST registered. But it has overturned an interpretation from the High Court that receivers are personally liable for GST in such circumstances. Chapman Tripp questioned the High Court’s application of the law, and considers that elements of the Court of Appeal’s judgment are also surprising.

PPSA section 95 creates dilemma for receivers, unless...

26 March 2012

Making a payment to a creditor (in this case, the IRD) will in and of itself give that creditor priority over competing creditors. A recent Court of Appeal judgment to that effect, under section 95 of the Personal Property Securities Act (PPSA), carries serious implications for receivers. The ruling suggests that the receiver has to choose between two risks – the risk of incurring penalty payments or the risk of conceding PPSA priority status unnecessarily. We suggest ways to escape this dilemma...

Are trading trusts getting an easy ride, Law Commission asks

21 February 2012

The Law Commission is looking into whether the regulation of trading trusts gives enough protection to creditors and beneficiaries in circumstances of insolvency. Submissions are due on the issues paper by 2 March 2012.

2012: Are you in the cross hairs for creditor claims?

13 February 2012

Recent decisions from the courts have raised the legal risk for directors and underlined the exposure to third party liability of auditors, trustees and promoters. As a result, we can probably expect this year to have more claims made by receivers, liquidators and out-of-pocket investors against those involved in: company governance and management; prospectus preparation; and the provision of professional services. So who is potentially in the gun, and why?

Reinsurance proceeds subject to charges under the Law Reform Act 1936

22 December 2011

Section 9 of the Law Reform Act 1936, recently the subject of the somewhat controversial Steigrad decision, has been held to apply to contracts of reinsurance in a High Court judgment delivered earlier this month.

Supreme Court confirms limited scope of VA casting votes

08 December 2011

The Supreme Court has affirmed the Court of Appeal’s finding in August of this year that a voluntary administrator may only use a casting vote at a watershed meeting where the number of creditors voting for and against a proposed deed of company arrangement is equal. The requirement that the 50% of creditors in number also represent at least 75% in value cannot be the subject of the casting vote. Nor can the casting vote be used to choose between the number and the value.

Court of Appeal on receivers' limitation of personal liability

06 December 2011

Receivers cannot escape personal liability on contracts they cause the company to enter into simply because all of the company’s assets have been paid out. So the Court of Appeal found last week in a decision which explored the application of limitation of liability clauses where, as is common practice, the liability is limited to the “available assets” of the company.

Two Bills that affect insolvency practitioners on ice for election

28 November 2011

The Insolvency Practitioners Bill is now unlikely to come into force until early 2013 due to the disruption caused by the election. The Finance and Expenditure Select Committee’s report on the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill will also be delayed until next year.

Lien vs Security Interest - who wins?

07 November 2011

A lien is the right to hold on to goods, and in some cases sell them, in order to ensure payment. Often the debt will be connected with services related to the goods. A lien can be obtained by contract, or in certain specific situations the law creates it automatically. The difference can be significant. Under the Personal Property Securities Act (PPSA), the holder of a common law or statutory lien may in some cases have special priority over a company’s secured creditors.

Finance company report finds most of the work already done

13 October 2011

The long-awaited Commerce Committee report into the finance company failures has found that most of the holes in the regulatory net have already been filled, or should be addressed through the Financial Markets Conduct Bill (FMC Bill). This was a risk we identified in our earlier Brief Counsel, given the busy legislative programme in the capital markets area, and was not helped by the fact that the Committee laboured over its task for more than two years and had to call extra time when Committee Chair Lianne Dalziel was called away by the Canterbury earthquakes. This Brief Counsel comments briefly on the Committee’s recommendations.

Passing the parcel: the RMA and insolvency practitioners

12 October 2011

Resource consents and environmental risks can affect the value of an insolvent business and give rise to civil or criminal liability. This Brief Counsel examines: when resource consents require transfer to a new owner, and potential liabilities that insolvency practitioners may face.

Directors and officers lose cover for defence costs

16 September 2011

A shock ruling this week by the Auckland High Court casts doubt on the extent to which directors can rely on their liability cover to help pay for defence costs in criminal and civil proceedings. This Brief Counsel summarises the decision and comments on its implications for directors.

Court of Appeal backs High Court decision on casting votes

06 September 2011

The Court of Appeal has affirmed the High Court’s ruling that a voluntary administrator may only use a casting vote where the number of creditors voting for and against the resolution is equal. The second limb of the test, that the 50% represent at least 75% in value, cannot be the subject of the casting vote. Nor can the casting vote be used to choose between the number and the value. The Court also confirmed that, where a voluntary administration is a substitute for liquidation, a Deed of Company Arrangement (DOCA) should provide for preferential creditors to be treated as they would in a liquidation. We understand that the Court of Appeal decision may be appealed to the Supreme Court.

Insolvency Practitioners Bill - as reported from the Commerce Select Committee

24 May 2011

Chapman Tripp has taken the opportunity to comment on the Select Committee’s proposed amendments to the Insolvency Practitioners Bill.

All insolvency practitioners to be registered

11 May 2011

Registration will be mandatory under the Insolvency Practitioners Bill as reported back to the House by the Commerce Committee. This is a radical and far-reaching change from the negative licensing regime initially proposed in the Bill. This Brief Counsel summarises and comments on the Committee’s report.

High Court gives useful steer to receivers

18 April 2011

Claims alleging breaches of duty by receivers rarely come to court so a recent and detailed High Court decision is welcome, particularly for the guidance it gives practitioners on: the duty to verify the validity of their appointment; the duty to achieve the best price reasonably obtainable; and the ability to retain funds at the conclusion of a receivership to meet anticipated litigation costs.

Receivers ordered to pay costs although not parties to the proceeding

22 February 2011

The recent High Court decision to award costs against the receivers of Five Mile Holdings Ltd, in addition to the company against which the proceeding was taken, has implications both for receivers and for stakeholders in a receivership. This Brief Counsel backgrounds the case and comments on its wider relevance.

Single number idea a good one

01 February 2011

Issuing businesses with a single identification number would make it more difficult for entities to hide behind a change of name and would be particularly useful if it were included on the Personal Property Securities Register, Chapman Tripp partner Michael Arthur said today.

Implications of May Wang's bankruptcypodcast

09 December 2010

Chapman Tripp partner Michael Arthur explains the implications of bankruptcy and the constraints it places upon an individual.

Supreme Court restores certainty for lenders under CCCF Act

03 December 2010

Lenders can have more certainty around their obligations under the Credit Contracts and Consumer Finance Act after the Supreme Court today found by unanimous decision that GE Custodians had no culpability in the ‘Bartles - Blue Chip’ case. This Brief Counsel looks at the judgment and at its implications.

Strength of PPSA protection over debtor-initiated payments tested

23 November 2010

The strength of the protection that the Personal Property Securities Act 1999 (PPSA) offers the recipients of monies paid by an insolvent debtor was tested recently in Stiassny and Ors v Commissioner of Inland Revenue – and failed to support the IRD’s right to retain funds paid to it. This Brief Counsel looks at the judgment and examines its implications for the PPSA.

Liquidators’ liability for litigation costs

10 November 2010

The longstanding view that liquidators are not personally liable for litigation costs has been reaffirmed in two recent decisions, one from the Supreme Court and the other from the High Court. This Brief Counsel looks at the two cases.

The when and how of claiming against an insolvent’s insurance

08 November 2010

The finance company collapses have led out-of-pocket investors to seek recourse from their financial advisers’ insurers instead. This Brief Counsel looks at when and how such claims might succeed – and finds that, as usual, the devil is in the detail.

Submission to the Commerce Select Committee on Insolvency Practitioners Bill

12 October 2010

Chapman Tripp has made a submission on the Insolvency Practitioners Bill to the Commerce Select Committee, strongly supporting the proposed amendment to s280(1)(cb) of the Companies Act 1993.

Last chance for say on Insolvency Practitioners Bill

05 October 2010

Submissions on the Insolvency Practitioners Bill, which has been referred to the Commerce Committee for public consultation, close on 12 October 2010 (next Tuesday).

The Courts - up close and personal with the PPSA

12 August 2010

The finer detail of the Personal Property Securities Act 1999 (PPSA) continues to be sculpted by the Courts through a series of decisions, at what seems to be an increasing rate. This Brief Counsel summarises the key rulings over the last year with, where possible, links to the full judgments.

GST hike will bring structural issue with law into sharper focus

05 August 2010

A Court of Appeal finding late last year that a director breached his director’s duty by selling an asset in a failing business when he knew that the company would be unable to meet the ensuing GST obligation has since filtered through into IRD practice. It is important, therefore, that directors are fully alert to the decision’s implications. This is particularly so as the monies involved in GST cases will become relatively larger after 1 October this year when GST rises to 15%.

A four step plan to reduce PPSA risk

04 August 2010

The Personal Property Securities Act (PPSA) presents risks to creditors who do not take steps to protect themselves. These risks are not difficult to circumvent but still seem not to be understood by many. With Australia scheduled to adopt a PPSA next year, we thought it timely to recap on some PPSA basics, look at what the New Zealand Courts have said and examine the impact of the Australian legislation. This is the first in a series of three Brief Counsels on this issue.

Shadow directors: can a trade creditor be at risk?

12 July 2010

New Zealand’s courts have only very recently acknowledged that banks could be liable as shadow directors in the right circumstances - see our previous analysis of the Krtolica case here. Now, the New South Wales Supreme Court has considered whether the same liability could apply to creditors of distressed companies where they exert pressure to recover outstanding debts. On the facts, no liability arose in the Australian case, but the judgment once again highlights the risks taken by third parties who become involved in the affairs of their debtors.

Guarantor directors cannot hide beneath DOCAs

07 July 2010

A recent District Court decision has confirmed that deeds of company arrangement (DOCAs) cannot be used to release directors from personal liability unless the creditors expressly relinquish the guarantees and vote in favour of the DOCA. The New Zealand case is the first to consider the issue and reflects the High Court of Australia’s judgment in Lehman Brothers.

Voluntary administration: helpful guidance in first court decision on Deeds of Company Arrangement

01 June 2010

The High Court, ruling last week on the first case to be brought under the Deed of Company Arrangement (DOCA) provisions in the voluntary administration regime, has provided useful guidance to insolvency practitioners on how to run a watershed meeting and how to draft a DOCA. This Brief Counsel looks at the implications of the decision, and questions whether the result is correct.

Buck stops with lender in oppressive contracts

19 May 2010

The Court of Appeal judgment in favour of Blue Chip victims, the Bartles, carries a caution for lenders in the finding that the loan contract entered between the Bartles and GE Custodians Ltd is oppressive within the meaning of the Credit Contracts and Consumer Finance Act and can be re-opened.

Negative licensing regime for insolvency practitioners

28 April 2010

Liquidators, administrators and receivers who are delinquent in their duties will be liable to be stood down or placed under supervision by the Registrar of Companies under the Insolvency Practitioners Bill tabled in Parliament yesterday.

Former ministers could face five years in jailpodcast

19 April 2010

Former Justice ministers Sir Douglas Graham and Bill Jeffries could face up to five years in prison if they are found guilty of misleading investors in the collapsed finance company, Lombard Finance. Chapman Tripp Partner Roger Wallis discusses the case on Radio NZ National's Morning Report programme.

Entitlement to interest under the standard NZBA Deed of Priority

11 March 2010

The High Court has recently clarified the meaning of the interest provisions in the New Zealand Bankers’ Association (NZBA) standard form Deed of Priority. The provisions are important because they provide for the extent to which each secured party is entitled to claim interest in priority to other secured creditors.

Moratorium changes explainedpodcast

17 December 2009

The government this week moved to tighten the rules around the use of moratoriums by finance companies. Chapman Tripp Partner Roger Wallis talks about the changes in the context of Hanover, which went into moratorium a year ago.

Lehman litigation is relevant to New Zealand’s DOCA regime

17 November 2009

A recent Australian Federal Court judgment arising out of the Lehman collapse has established that a Deed of Company Arrangement (DOCA) cannot bind a company’s creditors insofar as the DOCA purports to release third parties from liability. The decision is likely to be followed in New Zealand given the level of similarity between the DOCA regimes in New Zealand and Australia. This Brief Counsel considers whether Part 14 of the Companies Act 1993 (Compromises with Creditors) is likely to be interpreted as granting the requisite power to creditors to release third parties from liability.

Banks should tread carefully pending decision on Octaviar appeal

02 November 2009

Banks and others who take security in Australia will need to proceed cautiously pending a final decision on the Octaviar appeal – a process that could take several months. This Brief Counsel looks at the case and explores some of the implications for secured creditors.

Voluntary administration

01 November 2009

Voluntary administration is a new process. It was introduced from 1 November 2007. This article examines the process and explains the benefits and risks to be aware of.

Directors of “trading trusts” are subject to normal director duties

06 October 2009

A recent High Court decision has delivered an important reminder that, although a trading trust can provide a useful mechanism to shield assets from creditors, it does not exempt directors from the duty to protect creditor interests.

Court decision establishes limits of copyright

29 September 2009

Yes, receivers can sell copyright goods even without the consent of the copyright holder provided the goods are genuine and were legitimately acquired and subject of course to the usual priority rules. These parameters were established in a recent High Court decision. This Brief Counsel looks at the case and what it may mean for others.

Court order against financial adviser unlikely to set precedent

24 September 2009

The order by the High Court that a financial adviser pay almost $260,000 in damages to an elderly widow whom it advised to invest in a Blue Chip scheme is unlikely to set a strong precedent for similar claims in our view. This Brief Counsel discusses the case and its potential implications for others.

Crown Retail Deposit Scheme extended

01 September 2009

The Government announced last week that the Crown Retail Deposit Guarantee Scheme, which expires on 12 October 2010, will be extended. The extended scheme will commence on 13 October 2010 and end on 31 December 2011. Institutions will have to re-apply if they wish to participate in the extended scheme, but not all institutions currently covered by the existing scheme will be eligible.

Once more into the breach

26 August 2009

The Commerce Select Committee inquiry into finance company failures will mean yet more change in a sector which is already reeling under a tidal wave of legislative and regulatory reform. But, while the Inquiry will mean more uncertainty, it also offers some opportunities. This Brief Counsel looks at the TOR and offers some observations and analysis.

VIDEO: Roger Wallis welcomes Commerce Select Committee inquiry into finance company failurespodcast

24 August 2009

The law firm that advises a number of distressed finance companies operating under moratorium is welcoming Parliament's decision to hold an enquiry into finance company failures. Chapman Tripp's Roger Wallis talks to Corin Dann on NZI Business.

Committee inquiry welcomed – Chapman Tripp

20 August 2009

“The Commerce Committee inquiry into finance company failures will provide a welcome opportunity to correct some misperceptions about moratoria and – perhaps – to revisit some earlier policy decisions,” says Roger Wallis, a partner at Chapman Tripp.

Voidable preferences

31 July 2009

The new voidable preferences regime (which came into effect on 1 November 2007) provides a revised procedure for setting aside transactions and charges. This Brief Counsel refers to some recent cases which illustrate how the amended regime is being interpreted.

Enforcement and the "Enforcement Date" – recent Court comment on the NZBA Deed of Priority

02 July 2009

The New Zealand Bankers’ Association standard form Deed of Priority is a widely used document likely to achieve a renewed prominence in the current flurry of mortgagee sales. Although the subject of much industry comment, the deed has not often been considered by the Courts. This Brief Counsel looks at two recent decisions and examines their implications.

Recession body count grows as dated laws foul business activity

26 June 2009

The credit crunch and the international financial crisis are driving real, fundamental change across financial institutions, business, regulators and professional services organisations. Financial restructuring is often traumatic, but companies that restructure effectively in difficult periods can emerge and succeed. The imperative from a policy perspective, therefore, is not to protect the economy against change but to avoid unnecessary casualties.

Select Committee recommends tougher personal insolvency regime

05 June 2009

The Commerce Select Committee has been unable to reach a decision on whether the period of time for which a debtor's name can remain on a public insolvency register should be extended to five years. It wants this held out of the Insolvency Amendment Bill to allow further consideration. Most of its other recommendations are relatively minor but their effect in combination will be to make the Bill tougher.

Voluntary administration – the first 18 months

05 May 2009

Voluntary administration was introduced to New Zealand about 18 months ago. As of 28 April 2009, 42 companies had entered voluntary administration, with 16 of these companies entering a deed of company arrangement. This Brief Counsel examines New Zealand's experience with voluntary administration.

Managing employment risks in insolvency

31 March 2009

This article identifies some of the practical issues receivers and administrators face when they continue to employ staff and provides strategies to mitigate these risks.

Financiers at risk of liability as shadow directors

23 January 2009

As the recession bites, financiers, and in particular their internal recovery teams, are likely to become more involved in the businesses of clients under pressure as they seek to mitigate their losses from insolvency. As a financier’s involvement increases, so does the danger that it may become exposed to liability as a shadow director.

Guidelines for directors of companies in financial distress

20 November 2008

In the last 18 months, the credit crunch has had a devastating effect on the financial sector. The crisis is now spreading from finance into the real economy. In these difficult times it is vital that directors be aware of their legal obligations and duties and even more critical that they understand what they should be doing both to protect themselves and to preserve enterprise value.

Creditors have rights too

01 August 2008

When the economic climate is tightening it is inevitable that business failures increase. The healthiest of businesses can lose out when a customer becomes the latest victim of an economic slump. Creditors have rights which can be used to minimise and manage such exposures, but it is all too easy for these rights to be lost when they are not fully understood. We thought it would be useful to remind you of some key points for suppliers.


01 April 2008

The Receiverships Act was introduced as part of the 1993 company law reform package. Since then, New Zealand’s robust economic progress has meant that many lawyers and business people have a poor understanding of modern receiverships, resulting in difficult negotiations, unnecessary conflict and higher legal costs for all parties.

Chapman Tripp works with BDO Spicers on Voluntary Administration

27 February 2008

Chapman Tripp’s Restructuring and Insolvency Group acted for BDO Spicers, the voluntary administrators of Icon Digital Entertainment Ltd.

Voidable transactions – the new regime

01 December 2007

Parliament’s efforts to improve New Zealand’s corporate insolvency laws finally came into effect on 1 November 2007. The Companies Amendment Act 2006 has ushered in the voluntary administration regime, prohibitions on phoenix companies, further restrictions on those qualified to act as liquidators and various improvements, or at least amendments, to the liquidation rules.

Tightening credit conditions and finance company failures

01 October 2007

The recent "credit crunch" in global financial markets and the flurry of local finance company failures give cause to remind directors of the need to bear in mind their specific duties in insolvency or near-insolvency situations.


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